I have a client who had 6 rental properties in a corporation that also performed other services (active income). The corporation was sold to a new owner who did not want the rental properties, so they were sold back to my client at supposedly FMV (6 @ $65,000 = $390,000). I don’t have exact dates, but the properties were purchased between 1990 and 2000. The corporation was sold in 2016. My client has owned the rental properties personally for the last 4 years. In 2017 he set up a new corporation to perform transportation services among northern communities (spurred by the shut-down of the provincial bus service). Now he is thinking about transferring the rental houses into that corporation.
He wants my advice - whether and how to transfer these properties into the corporation.
He argues that the market value of the properties is much lower than the $390,000 he paid, because they are all 50+ year old mobile homes, and this year the insurance companies refuse to insure them (and without insurance, a buyer could not get financing). The land has some market value, but is located in a small northern town (Zone A for the northern residents deduction), so maybe $20,000 each.
Apart from the taxation of passive income (corp vs personal), and the possibility of generating a future CDA balance in the corporation, are there other issues I should consider? Is it worth considering Section 85? I’m thinking not, if his “tax cost” is greater than FMV.